SEC Staff Reviews Examination Process for Muni Advisors
The SEC Division of Examinations ("Division") reviewed its risk-based approach when selecting municipal advisors for examination and described the types of information requested during the course of examinations.
In a Risk Alert, the Division emphasized key elements of the examination process, including:
- Firm Selection. The Division said it uses data analytics and considers factors such as regulatory filings, business activities, conflicts of interest, disciplinary history and time since the last examination to determine which municipal advisors should be subject of SEC examination. Firms with significant risks, such as unresolved compliance concerns or high levels of client activity, are prioritized.
- Examination Focus. The Division said it tailors the scope of examinations based on each firm's business model and associated risks. Areas of focus may include fiduciary duty compliance, adherence to professional qualifications, recordkeeping and disclosure of conflicts of interest.
- Document Requests. The Division said municipal advisors may be asked to provide organizational details, supervisory procedures, financial records and client communications. The Division said it may make additional requests as examinations progress as it adjusts the scope of the exam to address identified risks.
The Division provided a sample document request list, covering topics such as written compliance policies, supervisory designations, training programs and municipal securities transactions.
The Division encouraged municipal advisors to assess their compliance programs and address potential deficiencies.